NEW YORK (TheStreet) -- A week ago I wrote, Bull Market Will End Without Big-Bank Leadership and on that day the PHLX KBW Banking Index (BKX) stayed above its 50-day simple moving average at $55.78. This week the BKX had what technicians call a breakout as the March 15 high at $57.60 was taken out to the upside. Wednesday's high at 58.85 was just above the April 2010 high at 58.81. This is a story where technical momentum has trumped overvalued fundamentals.
Traders and investors considering following the fundamentals and technicals may want to consider the more risky smaller community banks. The
America's Community Bankers Index
(ABAQ) is lagging the BKX and remains below its March 26 high at 190.57.
Investors need to be careful when investing in community bank stocks, as the smaller banks remain under the stress of the Great Credit Crunch, which began at the end of 2007 and continues in 2013.
The ghost of TARP continues! In a report compiled by SNL Financial 113 banks and thrifts missed their dividend payments that were due on Feb. 15. This statistic was as high as 139 FDIC-insured institutions in May 2012, with the decrease since then resulting from redemptions and auctions of related preferred stock.
If you recall TARP loans to banks were issued under the Capital Purchase Program, and under this program banks are required to pay the
quarterly dividend payments. The missed payments are on just $2.44 billion of the $204.9 billion received by 707 FDIC-insured financial institutions. Many of the banks are being told by their state regulators not to make these payments unless they can raise new capital. This continues to be difficult and thus I consider this as evidence of continued stress among community banks.
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The number of buy rated banks continues to decline. Among the 133 publicly-traded community banks in the northeast only one has a buy rating according to ValuEngine. Among the 159 banks in the southeast only ten have buy ratings. Among the 72 in the Midwest only five are rated buy or better. Among the 87 banks in the west only five have buy ratings. Among the 43 banks in the southwest none have buy ratings. Among the 166 savings and loans only eight have buy ratings. Difficulty maintaining a buy rating is a sign of stress in earnings related data. Only two of the seven buy rated community banks I profile today beat EPS estimates.
Reading the Table
Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.
A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.
Last 12-Month Return (%):
Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.
Forecast 1-Year Return:
Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.
Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.
A level between a value level and risky level that should be a magnet during the time frame noted.
Price at which to enter a GTC limit order to sell on strength.
($29.46): Missed EPS estimates by seven cents earning 57 cents per share on April 18. The weekly chart is positive with the five-week modified moving average at $28.29. My quarterly value level is $23.25 with a weekly pivot at $28.84 and monthly risky level at $32.31.
Capital City Bank Group
($11.84): Matched EPS estimates earning 5 cents a share on May 7. The weekly chart stays negative with a close this week below the five-week MMA at $11.97 with the 200-week SMA at $11.41. My annual value level is $9.87 with a weekly pivot at $12.01 and monthly risky level at $13.95.
($15.52): Missed EPS estimates by 14 cents earning 23 cents a share on April 17. This bank still has overexposures to both construction and development loans and commercial real estate loans. The weekly chart profile stays negative with a close this week below its five-week MMA at $16.10. My semiannual value level is $14.50 with a weekly pivot at $15.15 and semiannual risky level at $16.26.
Farmers Capital Bank
($20.04): Beat EPS estimates by 24 cents earning 44 cents on April 17. The stock opened at a multi-year high at $20.24 on May 8. The weekly chart profile is positive but overbought with the five-week MMA at $18.53. My quarterly value level is $11.82 with a weekly pivot at $19.19 and monthly risky level at $20.33.
Bank of the Ozarks
($41.76): Beat EPS estimates by a penny earning 56 cents a share on April 11. This bank still has overexposures to both construction and development loans and commercial real estate loans. The weekly chart shifts to neutral from negative given a close this week above the five-week MMA at $41.00. My quarterly value level is $27.53 with a monthly pivot at $41.98, and annual risky level at $43.44.
($16.23): Missed EPS estimates by three cents earning 45 per share on April 26. The weekly chart profile shifts to positive given a close this week above the five-week MMA at $16.30. My semiannual value level is $14.19 with a quarterly pivot at $17.10, and monthly risky level at $19.16.
United Community Banks
($11.26): Missed EPS estimates by a penny earning 15 cents a share on April 25. This bank still has overexposures to commercial real estate loans with pipeline risk where 84.3% of their CRE loan commitments are funded. The weekly chart profile shifts to neutral with a close this week above the five-week MMA at $10.87 with the 200-week SMA at $13.48. My annual value level is $8.84 with a monthly pivot at $11.96, and quarterly risky level at $14.64.
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined
in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs
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